DOJ Reaches DPA with HSBC Switzerland (12/11/19)

DOJ Tax has announced a deferred prosecution agreement (“DPA”) with HSBC Switzerland in which “HSBC Switzerland admitted to conspiring with U.S. taxpayers to evade taxes and, as part of the agreement, HSBC Switzerland will pay $192.35 million in penalties.”  See Press Release titled “Justice Department Announces Deferred Prosecution Agreement with HSBC Private Bank (Suisse) SA,” here.

The key excerpts of the press release are:

According to court documents, HSBC Switzerland admits that between 2000 and 2010 it conspired with its employees, third-party and wholly owned fiduciaries, and U.S. clients to: 1) defraud the United States with respect to taxes; 2) commit tax evasion; and 3) file false federal tax returns. In 2002, the bank had approximately 720 undeclared U.S. client relationships, with an aggregate value of more than $800 million. When the bank’s undeclared assets under management reached their peak in 2007, HSBC Switzerland held approximately $1.26 billion in undeclared assets for U.S. clients.  

According to the terms of the DPA, HSBC Switzerland will cooperate fully with the Tax Division and the IRS. The DPA also requires HSBC Switzerland to affirmatively disclose information it may later uncover regarding U.S.-related accounts, as well as to disclose information consistent with the department’s Swiss Bank Program relating to accounts closed between Jan. 1, 2009 and Dec. 31, 2017. Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of three years to allow HSBC Switzerland to demonstrate good conduct. The agreement provides no protection for any individuals. 

The $192.35 million penalty against HSBC Switzerland has three parts. First, HSBC Switzerland has agreed to pay $60,600,000 in restitution to the IRS, which represents the unpaid taxes resulting from HSBC Switzerland’s participation in the conspiracy. Second, HSBC Switzerland agreed to forfeit $71,850,000 to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2000 and 2010. Finally, HSBC Switzerland agreed to pay a penalty of $59,900,000. This penalty amount takes into consideration that HSBC Switzerland self-reported its conduct, conducted a thorough internal investigation, provided client identifying information to the Tax Division, and extensively cooperated in a series of investigations and prosecutions, as well as implemented remedial measures to protect against the use of its services for tax evasion in the future.

According to court documents filed as part of the DPA, the bank assisted U.S. clients in concealing their offshore assets and income from U.S. taxing authorities. To conceal its clients’ assets and income from the IRS, HSBC Switzerland employed a variety of methods, including relying on Swiss bank secrecy to prevent disclosure to U.S. authorities, using code-name and numbered accounts and hold-mail agreements, and maintaining accounts in the names of nominee entities established in tax haven jurisdictions, such as the British Virgin Islands, Liechtenstein, and Panama, that concealed the client’s beneficial ownership of the accounts. 

In an effort to attract new U.S. clients, and maintain existing relationships with U.S. clients, HSBC Switzerland bankers took trips to the United States. Between 2005 and 2007, at least four HSBC Switzerland bankers traveled to the United States to meet at least 25 different clients. One banker also attended Design Miami, a major annual arts and design event in Miami, Florida, in an effort to recruit new U.S. clients to open undeclared accounts with HSBC Switzerland.  

In early 2008, in response to a public U.S. criminal investigation into UBS AG, the largest bank in Switzerland, for tax and securities violations in connection with its maintaining undeclared accounts for U.S. clients, HSBC Switzerland began a series of policy changes to restrict its cross-border business with U.S. persons, but the bank did not immediately cease that business. In fact, some HSBC Switzerland bankers assisted clients in closing their accounts in a manner that continued to conceal their offshore assets, such as withdrawing the contents of their accounts in cash. 

The press release provides links to key documents (with the links provided below):

• the deferred prosecution agreement, here.
• the criminal information, here.
• the statement of facts, here.

Here is a cut and paste from a spreadsheet I maintain with respect to the IRS/DOJ offshore initiative:

FINANCIAL INSTITUTION ANALYSIS OF DATA SET
Financial Institution Summary
Treaty requests	15
John Doe Summonses	14
Criminal Matters
Criminal (incl Investigations and Prosecutions)	28
Guilty Plea	5
Forfeiture	9
Deferred Prosecution Agreement ("DPA")	10
NonProsecution Agreement ("NPA")	88
IRS Financial Institution List (OVDP Offshore 50%) *	122
Total Costs (Fines, Restitution, Other Penalties, etc.)	$6,252,633,647
US DOJ Swiss Bank Program	Number	Resolved	Total Costs
U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *	19	11	$4,579,764,115
U.S. / Swiss Bank Initiative Category 2	87	81	$1,368,983,990
U.S. / Swiss Bank Initiative Category 3	13		$0
U.S. / Swiss Bank Initiative Category 4	8		$0
Swiss Bank Program Results	127		$5,948,748,105
* Number and Number Resolved may not be same as DOJ and IRS numbers because counting related entities
Recoveries from Swiss Financial and Related Institutions in Swiss Bank Program Categories 1-4			$5,948,748,105
Other Recoveries from Offshore Financial and Related Institutions			$303,885,542
Recoveries from All Offshore Financial and Related Institutions			$6,252,633,647